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U.S. retail sales, consumer confidence point to soft economy

People walk in front of a store advertising sales in New York, December 24, 2012. REUTERS/Keith Bedford

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. consumer confidence ebbed early this month and retail sales advanced just slightly in August, the latest indications of a lack of momentum in the economy.

The sluggish pace of activity was underscored by another report on Friday showing an energy-led rise in wholesale prices last month, but subdued underlying inflation pressures.

The soft data, however, was unlikely to deter the Federal Reserve from cutting its massive bond-buying program as early as next week, analysts said.

"I don't think that's a red flag for the Fed. Overall the data picture is mixed and supports our view that it will be a light taper," said Thomas Costerg, a U.S. economist at Standard Chartered Bank in New York.

The Thomson Reuters/University of Michigan's index of consumer sentiment fell 5.3 points to 76.8 in early September, the lowest since April. Economists pointed to worries over high interest rates and a possible U.S. military strike on Syria.

Borrowing costs have risen sharply in recent months in anticipation of the Fed scaling back its monthly bond purchases.

A separate report from the Commerce Department showed retail sales rose 0.2 percent last month as Americans bought automobiles and other long-lasting goods like furniture and electronics and appliances.

But those purchases appeared to draw spending power away from other areas and receipts for clothing, building materials and sporting goods all fell.

Clothing store receipts dropped by the most in nearly 1-1/2 years, reflecting a slow start to back-to-school sales and offering a cautionary note ahead of the holiday shopping season.

Nevertheless, it was the fifth straight monthly rise in retail sales, which account for about 30 percent of consumer spending. They had gained 0.4 percent in July and economists polled had expected them to rise 0.4 percent last month.

Stripping out automobiles, gasoline and building materials, so-called core sales were up 0.2 percent after rising 0.5 percent in July. Core sales correspond most closely with the consumer spending component of gross domestic product.

Though core sales slowed a bit from July, they matched the second quarter's 0.2 percent average monthly gain.

Avery Shenfeld, an economist at CIBC World Markets in Toronto, said it appeared consumer spending was running close to the 1.8 percent annual rate it logged in the second quarter.

U.S. stocks were higher, while prices for U.S. Treasury debt also rose. The dollar was flat against a basket of currencies.

LITTLE WHOLESALE INFLATION

In a third report, the Labor Department said the producer price index increased 0.3 percent last month after being flat in July.

In the 12 months through August, prices received by the nation's farms, factories and refineries were up 1.4 percent after advancing 2.1 percent in the period through July. August's increase was the smallest since April.

Wholesale prices excluding volatile food and energy costs were unchanged in August after rising for nine straight months.

In the 12 months through August, the so-called core PPI increased 1.1 percent after rising 1.2 percent in July. It was the smallest increase since June 2010.

"Price pressures are not dead, but they are taking a very long and heavy nap," said Michael Montgomery, a U.S. economist at IHS Global Insight in Lexington, Massachusetts.

The Fed, however, appears more focused on the cumulative strides the labor market has made since its launched its third round of bond-buying last October. Most economists expect it to reduce the $85 billion (53 billion pounds) in Treasury and mortgage bonds it is buying each month at its meeting on Tuesday and Wednesday.

The retail sales report added to July data on consumer spending, industrial production, housing starts and durable goods orders that have suggested growth took a step back from the first quarter's 2.5 percent annual pace.

But there was some encouraging news on third-quarter GDP, with another report from the Commerce Department showing business inventories rising in July by the most in six months.

Retail inventories, excluding autos - which go into the calculation of GDP - increased 0.8 percent after slipping 0.1 percent in June. July's increase was the largest since January.

Forecasting firm Macroeconomic Advisers raised its third-quarter GDP growth projection by two-tenths of a percentage point to 1.9 percent. Barclays bumped up its forecast to 1.7 percent from 1.5 percent. Goldman Sachs increased its forecast to 1.7 percent from 1.6 percent.

(Reporting By Lucia Mutikani; Additional reporting by Steven C. Johnson in New York; Editing by Andrea Ricci and Tim Ahmann)